Hungary for Starbucks? Francisco Cavazos Dipannwita Chakraborty Da-Jiun Chen Rema Ramakrishnan
Jan 03, 2016
Hungary for Starbucks?
Francisco CavazosDipannwita ChakrabortyDa-Jiun ChenRema Ramakrishnan
Background
Hungary was part of polyglot Austro-Hungarian, which collapsed during World War I.
Fell under Communist rule following World War II.
In 1956, a revolt was met with a massive military intervention by Moscow.
Background
In 1968, under the leadership of Janos Kadar, Hungary began liberalizing its economy, introducing so-called New Economic Mechanism
In 1990, Hungary held its first multiparty elections and initiated a free market economy.
In 1999, joined NATO. In 2004, joined the EU.
Geography
Location: Central Europe Capital: Budapest Area: 93,030 sq km, slightly smaller than Indiana. Climate: dry continental climate, with cold winter
and warm summers. Natural Resources: Bauxite, Coal, Natural Gas,
Fertile Soils, Arable Land
People
Population: 10,032,375 (estimate 2004)
Age Structure
0%
10%
20%
30%
40%
50%
60%
70%
80%
0-14 years 15-64 years 65 years and over
People
Median age: Total: 38.4 years
Male: 35.4 years
Female: 41.1 years
Literacy: Total population: 99.4%
Male: 99.5%
Female: 99.3%
Way of Life
Rural nature Fewer than ten cities have a population of
more than 100,000 Cities are surrounded by village-type
settlements Huge number of commuters
Way of Life
Over 50% of the population pursues agriculture in addition to their main occupation.
Higher level of consumption of goods and services, as compared with other former Communist countries.
Social Problems: High incidence of alcoholism Racial discrimination and persecution
Privatization
Ownership structure of companies
(% in assets)
1992 1993 1994 1995 1996 1997
Total domestic private owners 25.1 29 32.9 35.2 34.7 38.2
Foreign owners 0.1 16.1 18.9 28.4 31.5 35.3
Total private ownership 35.2 45.1 51.8 63.6 66.2 73.5
Total state and other 64.8 54.9 48.2 36.4 33.8 26.5
Source: Pitti, Zoltán (1998)
Social services
Health care and pension funds are financed by employer-employee contributions totaling approximately 10 percent of the annual wages of each worker.
Health insurance is obligatory, and most medical treatment is free.
Guaranteed minimum wage.
Social Services
Eligible to receive retirement pensions
Men: age 60
Women: age 55 Social insurance provides for
prenatal and maternity benefits. compensation for unemployment. old age and disability pensions. aid to orphans and widows.
Currency and Exchange Rate
Currency: forint (HUF) Exchange rate: 189.09 (forint per US dollar)
Post-Communist period
Hungarian government actively sought foreign investment
Encouraged foreign firms to take over privatized firms
Today-80% of Hungary’s output is produced by private sector
Péter Medgyessy’s government is following a policy of shedding state ownership
Companies to be privatized: financial institutions (e.g. Posta Bank), MOL (The Hungarian Oil and Gas Company
Foreign ownership
National Development Program and the Smart Hungary program: aimed at facilitating foreign investment
100% ownership permitted, exceptions:defense, national airline
Manufacturing
Foreign67%
Local33%
Telecommunications
Foreign90%
Local10%
Land ownership
The 1994 Land Law: restricts foreign ownership to 6000 sq. meters
Leases are allowed up to 300 hectares for 10 years
Restrictions hold until 7 years following EU membership
Business Environment
Ownership more concentrated than in US
Hungarian accounting standards are significantly different from international standards
Dispute settlement
Independent judiciary and well-developed legal system
Hungary has accepted binding international arbitration in cases of dispute between state and foreign investors
Well developed commercial law
Regulations
Regulatory process Relatively open and transparent
Income tax levels 40% individual 18% corporate
Price regulation Pharmaceuticals,energy
Political environment
Political violence Almost negligent, peaceful transition to
democracy Corruption
Very low—good legal system in place Isolated incidents but not pervasive
"Good coffee should be black like the devil, hot like hell, and sweet like a kiss."Hungarian saying
Tradition
Traditional and growing modern trends Early 1900s New York Palace coffee shop
Significant role in cultural life Hub of most lively social events Used by most influential and significant writers
Tradition
Café Gerbeaud Opened 1858 Over 600 people
Oldest in 1824 Rebirth of Café era
Hungarian Coffee Market
2001: Coffee sales up 6% from 1997-2001 2002: Retail outlets accounted for almost
73% 2003: Hot drink market up 2.1%
Growth
Reduction of 12% luxury tax Growing disposable incomes Number of foodservice outlets Western lifestyle Better quality products Growing consumer sophistication
Expected Growth
By 2008 – Expected growth of 7.3% in volume Sales growth of 9.3% valued at HuF114.6 billion
Niche markets Green Tea Decaffeinated coffee Instant cappuccino
History and Objective
History 1971 1984 Howard Schultz,
vice president Objective
To establish Starbucks as the most recognized and respected brand in the world
Growth of Starbucks
Dominant retailer, roaster, and a brand of specialty coffee in North America
4.1 billion net revenue 8% annual store sales growth 1000 stores in Asia Pacific region More than 7000 locations worldwide 9 on Fortune Magazine’s Most admired companies
list
Starbucks: SWOT AnalysisStrengths Strong Brand Name
recognition Large retail distribution
system Quality Product Extensive product list Strong financial history Strong Human Resource
Weaknesses Prices high relative to
competition Strong dependence on
suppliers
Starbucks: SWOT Analysis
Opportunities Expansion into overseas
markets Expansion into untapped
U.S. markets. Expansion of brand name
into new products or business lines
Threats Economic condition may
make consumers unwilling to pay high prices
Political conditions abroad may limit expansion
May be reaching saturation point in some U.S. markets
International Market
Barriers to enter Hungary Competition: Countless coffee
shops in Hungary Trend in Hungary: Every café
serves alcohol Ambience: Elegant and
sophisticated Supply/Demand: Additional
cafés would cause surplus Price: Lower comparative
price
Price Comparison
Hungary Coffee Shops Price Starbucks Price
Espresso $1.30 Espresso $1.75
Cappuccino $1.99 Cappuccino$ 3.45
Coffee with milk &whipped cream
$1.99 Coffee with milk& whipped cream
$3.95
Hot Chocolate $1.99 Hot Chocolate $ 2.70
Ice Coffee $2.60 Ice Coffee$ 3.95
Frappe $3.33 Frappe$ 3.95
Frappe ( with vanilla ice cream )
$3.00 Frappe ( with vanilla ice cream )
$ 3.95
Recommendation
Do not enter the Hungarian market.
Questions
Any questions?